Question: Question 1 . Year IBMs yearly stock return Yearly return on the S&P500 1999 17.02% 21.04% 2000 -21.21% -9.10% 2001 13.09% -1.89% 2002 16.22% -22.10%

Question 1.

Year

IBMs yearly stock return

Yearly return on the S&P500

1999

17.02%

21.04%

2000

-21.21%

-9.10%

2001

13.09%

-1.89%

2002

16.22%

-22.10%

The riskless rate for this period is 3.5%, and the covariance between returns on IBM stock and the S&P500 over this period is 0.02276.

1E. What is the variance of the S&P500 over this period?

1F. What is IBMs CAPM beta according to this data?

1G. What is IBMs CAPM cost of equity according to this data?

1H. If IBMs debt to equity ratio is 0.57, what is their unlevered cost of equity according to this model?

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